A business owner’s individual disability insurance policy almost never has a single definition of what constitutes earnings.
Ethan Abramowitz, an attorney who represents claimants against disability carriers, saw it happen to a physician with a medical practice, a lab, and a consulting company, and nearly a million dollars in combined income.
One definition set the physician’s benefit, but another decided if he’d actually collect it.
His practice’s group policy capped his benefit at the roughly $250,000 his medical practice alone generated, for a $20,000-a-month maximum.
A policy underwritten against one business’s own documented income, rather than a flat group number, would have measured that figure very differently right from the start.
His lab and his consulting company, worth roughly three times that combined, never counted toward the number at all.
That half of the arithmetic is ordinary. A group plan insures only the earnings it can verify through the practice or employer that sponsors it.
Loss of Earnings Test Counts Every Dollar When Deciding Whether a Claim Qualifies
The second half is not ordinary. When the physician filed a partial disability claim, the policy needed to see a 20 percent drop in earnings before it would pay him anything.
For that test, it set the $250,000 figure aside. It counted his full income instead, the practice, the lab, and the consulting company, all added together.
“As long as he has income coming in from these other businesses for personal services, active income, he’s never going to qualify for a benefit under that group plan.”
Ethan Abramowitz, ERISA attorney with more than 13 years experience representing physicians, dentists and attorneys.
The $250,000 figure answered how large his check could be. The full amount answered whether a check would arrive at all.
Narrow Benefit Definition and a Broad Eligibility Test Coexist in One Policy
Neither half of the definition is unusual by itself.
A group plan caps covered earnings at whatever single employer or practice reports them. That is the only income a plan administrator can verify without reaching into a business it has no relationship to.
The same plan typically tests a qualifying loss of earnings against a claimant’s total earned income from active work instead, the same active-versus-passive distinction the Internal Revenue Service applies in its own material participation tests.
The eligibility test exists to confirm the claimant can no longer earn a living. It was never built to isolate a loss inside one entity.
Put those two ordinary provisions in the same contract, and a business owner with diversified income ends up boxed in from both directions, a benefit sized to a fraction of what he earns, and an eligibility bar sized to all of it.
A physician whose practice income drops by half, while his consulting income holds steady, can fail the 20 percent test on his combined earnings, even though his practice-specific loss would have cleared it on its own.
Neither provision was written with the other in mind. The combination is what leaves him exposed.
An individually underwritten disability policy is built differently. It uses one entity’s own documented income, with its own stated benefit and its own stated loss-of-earnings formula, rather than a group definition assembled from two provisions that happened to land in the same certificate.
Guardian’s own individual contract shows what one coherent formula looks like next to Abramowitz’s account of how a group plan typically splits the same question in two.
| Individual Policy (Guardian’s Specimen Contract) | Group Plan (Abramowitz’s Account) | |
|---|---|---|
| What sets the benefit amount | The income documented and underwritten when the policy is issued | Whatever income the employer-sponsored plan reports as covered earnings, often base salary alone |
| What a partial claim is tested against | The same policy’s own stated formula, the percentage of income actually lost multiplied by the monthly benefit | Total earned income across every business the claimant is active in, by Abramowitz’s account |
| Number of earnings definitions in the contract | One | Two, applied for different purposes and never reconciled with each other |
| Where the formula is written | Spelled out in the Enhanced Partial Disability Benefit Rider before any claim exists | Often left to a provision a business owner may never see written out in full, per Abramowitz |
Guardian figures are drawn from the Enhanced Partial Disability Benefit Rider in Guardian’s specimen policy, Policy Form ICC16 18ID. Group-plan figures reflect Ethan Abramowitz’s account of cases he has reviewed, not a specific contract on file.
The risk is not limited to physicians. A consultant, a tradesman, or any business owner with income running through more than one entity reads the same two definitions differently, depending on which one a carrier applies first.
A consultant might run a single practice alongside a side business. A tradesman might own his shop and a rental property. Either one can land in the identical mismatch the physician did, a benefit measured against one entity and an eligibility test measured against all of them.
Knowing which definition a group plan is using, and when, is the only way to see the mismatch before a claim is the moment it gets tested.
The distinction is usually buried deep in the disability plan document.
Abramowitz has found that a summary plan description often skips the earnings definition entirely. The full policy buries it several pages in, under a heading that names the term rather than the number.
A business owner who stops reading at the benefit percentage on page one never reaches the page where the two definitions actually diverge.